Every little helps? Supermarkets accused of 'cynical manipulation' over 1p cuts

Every little helps? Supermarkets accused of 'cynical manipulation' over 1p cuts

Former OFT head criticises industry as investigation shows majority of trumpeted price reductions worth just a penny


The majority of price cuts in the supermarket price wars between Asda and Tesco in the run-up to Christmas were just 1p, a Guardian investigation can reveal. In contrast, the majority of price increases imposed by the two retail giants during the same period were more than 10p.

This new analysis of supermarket pricing policy shows a "cynical manipulation of the language of value" according to independent expert Professor John Bridgeman, who criticised the use of "price flexing".

Bridgeman, who as director general of the Office of Fair Trading from 1995 to 2000 conducted official inquiries into the supermarket sector, said the large number of 1p decreases, promoted by Tesco and Asda as thousands of price cuts before the festive season, damaged the credibility of any marketing slogans they used.

"They are not in reality cutting prices but flexing prices, making them go up and down and destabilising the price structure," Bridgeman said. "All they are doing is introducing so much volatility no one can tell whether prices are going up or down. It can only be to consumers' detriment and it does their image no good."

Data taken from Asda's website by third-party analysts indicates that it cut nearly 800 prices between 16 and 23 December, with two-thirds of the cuts being just 1p and 80% of the total number being less than 10p. It also increased more than 850 prices that week. In contrast, only 6% of the rising prices went up by the same small increment of 1p; 53% of the rises were more than 10p.

The pattern is repeated in data taken from the Tesco website: between 16 and 23 December it cut about 930 prices, 70% of which were by just 1p. It also increased just under 1,000 prices in the same period; in contrast 7% of these rises were by the small increment of 1p, and more than 600 – or 60% – of the price increases were by more than 10p.

Both supermarkets said the majority of price increases in that period can be explained by products which had been discounted coming off promotion.

In Bridgeman's view, the scale of price changing and the relative size of the cuts and rises is both confusing and misleading to consumers. "The most dangerous thing [for] competition in this sector is price volatility," he said. "It confuses consumers, deters investors and has driven corner shops out of business because they don't know what price they have to compete on," he said.

Paul Dobson, a professor of retailing at Loughborough University who has been studying supermarket prices over a five-year period, says the pattern the Guardian had identified before Christmas matches the overall pattern. Researchers at Loughborough and at Warwick University have found that, overall, price cuts made by the big four UK supermarkets – Tesco, Asda, Sainsbury's and Morrisons – tend to be small and price rises larger.

His research has found the most common price cut among the big four over five years is 1p. Such low cuts have little impact at the checkout, but introducing them on large numbers of goods enables the supermarkets to claim they are cutting thousands of prices. Over the five years, according to Dobson, these small cuts have been used to mask serious price hikes on a smaller number of lines with a big net effect on bills. "In the big inflationary period of 2008, there were two and a half times the numbers of price cuts in the big four as price rises, but in fact prices overall were rising very rapidly," he said.

Dobson said his research shows that of the big four UK supermarkets, Tesco is the most prolific user of 1p cuts, and Asda the second most prolific. He also said Tesco changes its prices more than the other retailers.

Asda did not challenge the Guardian figures but said the explanation for the large number of 1p cuts was "straightforward". "We won't be beaten on price. So if a competitor goes lower than us on a comparable product, even by just a penny, we will always try and match or beat that price," said a spokesman. "Whichever way you look at the numbers, Asda is the undisputed lowest price supermarket – as independently verified by mysupermarket.com."

Tesco also rejected Bridgeman's interpretation of the significance of the number of small and large price changes:

In a statement, the company said: "We do not manipulate prices in this cynical way. The Guardian and Professor Bridgeman are using data we do not recognise and his conclusion that we are deliberately confusing customers is nonsense.

"This is a competitive market and prices are lower this year than last year. Our customers know us, shop with us every week, trust us and are not confused. Instead of trying to find product price changes to fit a half-baked theory, Bridgeman and the Guardian should look at what has happened to the overall price of customers' baskets. As the current head of the Office of Fair Trading said last month, the sector is 'highly competitive' and prices have 'come down enormously'."
Coming clean
A discount that 'disguised a rise'

The rise and fall in price of a leading brand of cleaner, CiF Antibacterial, provides a "perfect example of price volatility designed to confuse consumers", according to Professor John Bridgeman.

In June last year the CiF cleaner was being sold at £2.50 in both Asda and Tesco. In August it went on promotion briefly at Asda at £1 before returning to £2.60. Tesco dropped the price to £2 in September before putting it back up to £2.50, and then discounting it again in November to half price at £1.25. By December Asda had put it up to £2.80 and higher, and the week before Christmas Tesco increased the price to £2.80. By the end of the year, both retailers had increased the price by what Bridgeman calls an "aggressive" 12% over the price at the beginning at the summer. Discounts have disguised a rise, he says.

Tesco rejected Professor Bridgeman's interpretation of the significance of the number of small and large price changes:

"We do not manipulate prices in this cynical way. The Guardian and Professor Bridgeman are using data we do not recognise and his conclusion that we are deliberately confusing customers is nonsense."

Asda did not challenge the Guardian figures but said the explanation for the large number of 1p cuts was "straightforward". "We won't be beaten on price. So if a competitor goes lower than us on a comparable product, even by just a penny, we will always try and match or beat that price."